Teaching kids how to manage money should be an important goal for parents today: Here are some simple, helpful strategies

Teaching kids about money

Money is a topic that never goes out of style. From newspaper headlines to magazine covers and Internet ads, making, saving, and spending money is a constant focus of the media and our lives.

That is why it is important to teach children how to handle money responsibly, starting at a young age. When they become adults, they may not fall prey to credit card temptations or investment scams. Here are some ways to get started.

1. Before kids start school, teach them the value of and uses for money. Four- and five-year-olds should understand that money is used to pay bills, buy food, and purchase gifts or fun items. In this era of paperless money and online banking, “cash” may seem like an increasingly abstract value. In a few simple sentences remind your little ones of the relationship between work and salary, buying and saving:

Teaching kids about money

“I’m off to work now, Billy. Isn’t it great that my salary can pay for things like this house, electric for lights and television, and our meals?”

2. Consider giving kids an allowance for their share of entertainment expenses or in exchange for household chores (which they should do regardless of allowance). Choose an appropriate amount: if you pay too little, it will hold little value or interest for kids. If you give them too much, they may become used to getting things “easy.” One rule of thumb used by some parents is fifty cents for each year of age. For example, a five-year-old may receive $2.50 per week or $10 a month. The amount should fall in with the family budget and views on spending.

3. From their allowance, encourage children to donate ten percent to the family place of worship or mission program so that they get in the habit of charitable giving. Another ten percent should be put into long-term savings. Essentially, kids would receive 80% of their designated allowance. Take your child to the bank to open a savings account in his or her name. Then monthly, quarterly, or bi-annually, take your child to make the savings deposit, having the passbook marked accordingly. Tangible evidence like this helps kids appreciate the value of deferred spending.

4. You may want to consider enrolling your child in an investment program designed for kids. Check out investment programs online or talk with your family banking institutional officer about various options. In some programs, kids can invest small amounts for shares of stocks they actually use, like soft drinks, toys, or restaurants. In addition to holding their interest as they follow the stocks’ movement over a period of time, this teaches children the value of investment, which may establish a life-long habit of financial acuity and stewardship.

5. Help kids plan short-term purchases, like a bicycle or a computer game, by saving money from each allowance. They may want to figure a savings plan on paper or keep a simple ledger of monthly spending and saving so they can track their money, both short-term and long-term. When enough extra cash appears on the plus-side of the ledger, they will have enough to buy the desired object.

6. Teens who work part-time jobs should be encouraged to save part of their income for college or career training expenses, or perhaps a car and insurance expenses. Kids who have these things handed to them instead of contributing themselves sometimes grow up expecting “handouts” from others or failing to understand the relationship between earning and spending.

There are many worthwhile books available to help your child understand the economics of daily living. Browse library holdings or bookstore offerings to find those that can help you do a terrific job of sharpening your child’s financial awareness and fiscal responsibility.

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